July 1 (Bloomberg) -- Colorado’s Corrections Department is selling $112 million in bonds backed by rent on a prison it hopes to lease as similar debt is beating top-rated securities in the $3.7 trillion municipal market for a fifth-straight year.
This week’s taxable offering of the certificates of participation will retire tax-exempt debt sold in 2006 and 2010, according to deal documents. The issue is backed by revenue appropriated annually by lawmakers from rental of the East Canon City Prison Complex in Canon City, a two-hour drive south of the capital, Denver.
The 948-bed high-security institution, which opened in 2010, operated at one-third of capacity until it was shuttered by the state in November. Colorado wants to turn it over to others temporarily and the current tax-exempt debt precluded a lease to federal agencies, said Alison Morgan, assistant director of finance and administration for the state’s prisons.
“By going to a taxable structure, it allows us to expand our marketing ability to potential vendors who would be interested in this facility,” said Morgan, who is based in Colorado Springs.
Government agencies such as the Federal Bureau of Prisons and U.S. Immigration and Customs Enforcement might find the complex useful, she said.
“We have a state-of-the art facility to manage the difficult segment of the prison population,” she said.
Colorado’s inmate population has dropped 11 percent since 2009 because of decreased crime, changes in sentencing, reduced use of solitary confinement and efforts to prevent the return of parolees, according to deal documents.
Leasing and rental municipal securities year to date are earning 0.67 percent compared with a loss of 0.12 percent for triple-A debt, Bank of America Merrill Lynch data show. They have posted higher returns than the top-rated bonds since 2009.
Moody’s Investors Service rates the issue Aa2, third-highest, saying the state has an “established track record” paying similar debts. The legislature has always made lease payments on the prison, according to deal documents.
A 2006 certificate of participation insured by Ambac Assurance Corp. and due in 2015 traded June 17 at an average yield of 0.70 percent, according to data compiled by Bloomberg. Benchmark bonds of the same maturity yielded 0.48 percent that day.
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